By Maximilian Clarke

The Financial Services Authority (FSA) and the Office of Fair Trading (OFT) have joined forces to help prevent the problems associated with payment protection insurance (PPI) recurring in a new generation of products.

“This is the first time that the FSA has issued guidance on the design of a specific product,” commented Margaret Cole, FSA Managing Director. “Firms must learn the lessons of the past and make sure they have consumers' needs at the heart of new product development.”

The FSA and the OFT are consulting on proposed guidance to firms in relation to payment protection products - which can fall within either regulator's remit. This is a key time as the market shifts away from PPI and firms begin to develop new products or product features - such as short-term income protection, or debt freeze or debt waiver as elements of a credit agreement or mortgage.

The two organisations will continue to monitor developments in the market, and will take appropriate action under their respective powers where firms' products or practices risk causing detriment to consumers.

The OFT's guidance sets out how the OFT considers the Consumer Credit Act (CCA) applies to payment protection products such as debt freeze or debt waivers linked to a regulated credit agreement, and what firms can do to ensure compliance with the CCA.

In particular, firms should ensure that consumers are absolutely clear about the nature, price and implications of payment protection products. For example, if an agreement is offered with an option to choose debt waiver terms, upon payment of a fee, it may be necessary to provide financial information including and excluding the cost of the debt waiver.

“It is important that the problems encountered with mis-selling of PPI do not arise in relation to new payment protection products,” said David Fisher, OFT Director of Consumer Credit. “Firms need to ensure that they comply with relevant legislation and do not engage in unfair or improper business practices. In particular, they should make clear to consumers what they are signing up to, and how much it costs, so that they can make properly informed decisions.”

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